eBay may be tough for auction rivals to hammer

As Microsoft Network, Excite@Home, and Lycos take aim at eBay, industry observers say the auction leader has little to fear in the near future.

3 January 200211:43 am AEDT

Microsoft Network, Excite@Home, and Lycos took aim squarely at eBay in launching their own online auction network today, but the auction leader may have little to fear in the near future.

Despite the big names involved in the new online auction network--which also includes Dell, Ticketmaster Online-CitySearch, Xoom.com, and dozens of other Net companies--analysts and others in the industry say eBay will be tough to topple because of its vast market lead.

eBay owns some 70 percent of the consumer auction market and an even higher percentage of the person-to-person auction category, according to Gomez Advisors. That has made eBay virtually synonymous with online auctions and one of the few that already has a critical mass of buyers and sellers, with some 2.6 million simultaneous sales.

As Gomez analyst Sue Rothberg said of the new auction network's challenge, "I don't think this is going to make much of a dent in eBay."

As the online auction market has grown from a place to buy Pez dispensers to a billion-dollar-per-year business, everyone from Amazon to Yahoo has sought a piece of the action. Moreover, the business carries few of the overhead costs that burden other e-commerce markets, such as distribution centers and inventory.

Members of the partnership seemed eager to be a part of the auction network, which allows them to share listings, as several said auctions were a critical part of their e-commerce efforts. David Sze, senior vice president of strategy and network Programming at Excite@Home, went so far as to call auctions a "cornerstone" of the company's Internet strategy.

Their ambition, however, won't necessarily equate success. eBay has the advantage of being the first online auction site on the block and has built that advantage into market dominance.

This position keeps the business growing, said Hambrecht and Quist analyst Genni Combes. Sellers list their items on eBay because they know they will get a critical mass of buyers. And buyers keep returning to eBay because they know they will find a diverse range of products for sale.

"It's hard to take away that momentum," Combes said.

Another thing going for eBay is that it has worked hard to maintain customer loyalty through its feedback network. Buyers and sellers post messages about their auction experiences and use their resulting feedback rating to market themselves and their wares.

"eBay has lots of loyalty with buyers and sellers," said Fiona Swerdlow,
a digital commerce analyst at Jupiter Communications. "I don't know if their current customers are going to migrate away from eBay."

Still, if auction spending and participants continue to soar, the coalition may not need to wrest customers away from eBay to succeed.

Gomez Advisors projects that the online consumer auction market will grow from $4.5 billion this year to $15.5 billion in 2001. In addition, Gomez forecasts that the percentage of Internet users who have registered at an auction site will rise from 8.2 percent this year to 14.5 percent in 2001, even as the overall number of Internet users continues to grow.

But simply targeting new users is only a first step. The new alliance will have to find a way to build a community out of those users, said Barry Parr, e-commerce analyst at International Data Corporation.

Parr said that the alliance members have the financial resources at their disposal to promote their auctions. However, money may not buy community. eBay, for instance, has seen its community grow from the grassroots, and has nurtured it by building a number of community features into the site, including bulletin boards and chat rooms.

"I don't think it's going to work to slap up a bunch of listings," Rothberg said. "What [eBay, Amazon, and Yahoo] have done very effectively is create other elements beyond the listings."

Parr adds that money won't solve another problem: focus. Unlike eBay, Parr noted, none of the alliance members is focused solely on auctions. Although eBay can concentrate on building the best auction experience, each of the alliance members has other parts of their business to worry about.

But eBay may still be vulnerable. Its reliability has become something of an Achilles' heal. eBay users have grown increasingly frustrated with the company's outages and seemingly capricious policy decisions. Although users have not departed the site en masse, increasing numbers of them report that they have begun to move listings onto other auction sites.

Yahoo and Amazon have been the primary beneficiaries of these partial defections. Yahoo says it now has some 750,000 simultaneous auctions.
Although Amazon refuses to say how many auctions it has, industry observers say the e-commerce leader now host around 150,000.

And the new network has already dented the company's stock price. The
price declined 10.75 points on Friday to close at 141 and by 12:15 PT
today, had dropped another 4.875 points to 136.125.